TaxProTalk.com

Brand new client's admin-assistant engages with us, today, for 1120s preparation and filing services (only).

An hour later we get an email from her, saying that the owner has a few questions. The first one looks like this:

Accounting questions:
A. Are they doing the end of year taxes, and if so do they check the books to be sure our previous accountant has been doing it correctly?

How do you respond to this?

My thoughts are:

"Audit/redo them? Sure, but not until after tax season and $XXX per hour."

"Scan them quickly for any glaring irregularities? My pleasure, but you can't hold me to anything that I miss."

How is your engagement letter worded? I am sure this is not the first time you encountered this issue if you have been in this line of business for a while.

Before I take on a new business client I want to see the last 3 year's filings. My engagement letter says very clearly that I am relying on their books and records for tax return preparation. I am NOT doing any audit of their books and records

ATSMAN wrote:How is your engagement letter worded? I am sure this is not the first time you encountered this issue if you have been in this line of business for a while.

Before I take on a new business client I want to see the last 3 year's filings. My engagement letter says very clearly that I am relying on their books and records for tax return preparation. I am NOT doing any audit of their books and records

OK, fair enough, I'm not totally lost here. I just thought it was an interesting topic and I wanted to gather and compare a knowledge base.

Our agreement says lots of things. We haven't had a chance to send it yet. ..Here are the related items...

Additional fees may apply when:

• Bookkeeping services are requested or required
<lots of other things>

This engagement is for income tax preparation services only. It does not include:

• <lots of things>
• Bookkeeping

Bookkeeping is not included in the price quoted for tax preparation:

• To avoid bookkeeping fees, clients will provide categorized income and expense statements or completed organizers/questionnaires as provided by the tax preparer.
• The tax preparer charges additionally to extract, interpret, sum, or merge data from receipts, ledgers, bank statements, or other documents that are not fully completed and categorized financial statements.
• The tax preparer may or may not be able to provide bookkeeping services on a case by case basis depending on the tax preparer’s workload.

Other Items and Expectations:

• The tax preparer will depend on the client to provide the information the tax preparer needs to prepare complete and accurate returns. The tax preparer may ask to clarify items but will not audit or otherwise verify the data submitted by the client.
<lots of other things>

I have always had a bad feeling if a bookkeeper is hiring us. an un engaged owner is the worst.

That said... I use a car lot analogy that all clients understand. For tax prep, we kick the tires, turn the engine on and listen. if something doesn’t sound right, we take it around the block, but that costs a bit extra.

if after we go around the block we find a problem, we discuss a new approach and fee.


BUT 80 percent of all clients pass the around the block test. Doesn’t mean your engine is good. That’s why you sign the letter.

A house painter can’t be held responsible for termite damage is a line I like to use.

That said... I use a car lot analogy that all clients understand. For tax prep, we kick the tires, turn the engine on and listen. if something doesn’t sound right, we take it around the block, but that costs a bit extra.

I like this analogy!

Bottom line is there has to be a "meeting of the minds" with the business owner. Most disputes arise out of a misconstrued expectation and we need to pay very careful attention to what the client is asking. Their questions will give us a clue what they are expecting and we need to set them straight.

I still have clients calling me regarding payroll issues, post Cares Act even though I don't do their payroll!

Agree with ATSMAN.

Get the owner on the phone and clarify what he or she is actually asking. Only then will you be able to provide solid responses that won't cause misunderstandings.

I wouldn't even attempt to provide answers via this middleman email communication method. Way too inefficient. I think you're wasting too much time trying to draft a multi-page response that covers all interpretations of each question. Just go with the call.

The owner is going to need to be involved at some bare minimum level. e.g. sign engagement letter, review and sign tax return. Otherwise how do you know that the admin assistant actually works for the owner and/or has the authority to do what they're doing?

Is it possible the bookkeeper has a selfish interest in knowing the scope of your services? Worried about being replaced? Worried about what may have happened in the past?

OP never mentioned that the admin assistant is also the bookkeeper. And based on the question and context in the first post, I'd say it's safe to assume he or she isn't.

If I had a $ for each time I encountered an incompetent girlfriend, wife or other family member of the owner, acting as the bookkeeper of the business I could retire! Many small business owners don't want to pay for this service for any given reason and the result is a big mess at tax prep time.

I have one client that pays my assistant to check his girlfriend's work on Quickbooks

If I have access to the records, I look for obvious errors in the GL. I do have some that willingly pay me to look over their books a few times a year because they do not trust their bookkeepers, but do not want to engage my firm. OH WELL. But for most of the businesses I do, I also maintain their accounting throughout the year and so it is not really an issue.

ItDepends, Our engagement letter for 1120 and all other returns says that we do not check for falsifications, etc. You can never know if the books are correct even if your firm did them unless the client provided you with all receipts and certifies under oath with an independent third party present, that yes, all are truly legitimate business expenses.

You're not doing the books, right? You're not getting paid to review the books, right? Are you a CPA and can do audited financials? Just quote them the fee for that. Why is the owner so concerned? If they don't want to pay for audited financials, quote them the much lower fee but with adequate disclaimers for review work. It's common for CPAs to enclose a disclaimer with the (unaudited) financials they've prepared.

If we are not willing to look over the prior year tax returns and get a feel for the client, then why are we even taking the engagement. How much value is there in taking the numbers from Quickbooks and punching them into your corporate tax software and doing the bare minimum.

I enjoy reviewing some other CPA or accountants work and seeing what they charge and how skilled they seem. Nothing better than going to a new client and pointing out something that could save them money

The thing is most of us are getting paid to “review” the books we just do not call it that. We have many corporate tax engagements where we do not issue financial statements but are getting paid between $5k an $10k to do the job right. That means looking at the books

BerkshireCPA wrote:If we are not willing to look over the prior year tax returns and get a feel for the client

I don't think that's the issue here. Not all clients are willing to pay 5K or more to have someone review their books.

I've been asked to "scrub the books"..."tune em' up" both implying to give them assurance their bookkeeping is in great shape, at a very low cost to them. I reviewed a QB file, where the "Interest Expense" appeared suspicious - the girlfriend/bookkeeper had deducted $140k as "payoff of loan" (a refinance of a loan) she recorded it as Interest Expense,
overstating interest expense by $140,000.
Another one, had "warehouse expense" (a large deduction) googled the address to find the "warehouse" was
his beachfront property.
Be on alert when you "check the books".

The gf should have renamed the interest expense account to "interesting expense account". I once had a "bookkeeper" deduct $150,000 because she didn't know the difference between cash and accrual ...

Andrew wrote:

BerkshireCPA wrote:If we are not willing to look over the prior year tax returns and get a feel for the client

I don't think that's the issue here. Not all clients are willing to pay 5K or more to have someone review their books.

Yeah - this.

That's great that you have such a grandiose clientele with small/mid-sized businesses (that sounds sarcastic, but it's not. I humbly look up to you and I do not begrudge your success).

But my client inquiries tend to be, for example, surfboard rental s corporations netting 80K. There is nothing illegitimate about them, but they are looking for a ~$1000 income tax prep experience. They get a much more narrow engagement as compared to what you are describing for 10K.

PS. Of course I will look at last years tax returns for a new client, but that doesn't mean I'm verifying the numbers on a P&L in anyway.